There are two common types of bankruptcy: Chapter 7 and Chapter 13. A Chapter 7 bankruptcy is where you ask the court to completely discharge your debts, using any existing assets you have to pay out. A Chapter 13 bankruptcy is where the court set-up a payment plan to pay a small part of what you owe over the next 3 to 5 years.
In both cases, a bankruptcy penalty is applied to your credit report and stays on your credit history for up to 10 years—3 years longer than most other penalties, such as debt settlement. Even after 10 years, the bankruptcy may be reported when you seek employment at a new job, or apply for a personal loan or life insurance policy. With both Chapter 7 and Chapter 13 filings, the stigma of bankruptcy may very well be with you for the rest of your life, so it’s not a decision that should be made lightly.
Additionally, a Chapter 7 bankruptcy doesn’t protect you from losing your home to foreclosure, whereas a Chapter 13 may allow you to avoid foreclosure. Since the Chapter 13 bankruptcy filing includes partial repayment of your debts, you will have a trustee that you send payments to and then they divide the money amongst your creditors, appropriately. In both cases, creditors must stop any action to collect on your debts and cannot pursue any further litigation against you.
Moreover, there is Chapter 11 Bankruptcy filing by debtors who are engaged in business,
including corporations, partnerships, and sole proprietorships, may prefer to remain in business and avoid liquidation. Such debtors should consider filing a petition under chapter 11 of the Bankruptcy Code seeking an adjustment of debts, either by reducing the debt or by extending the time for repayment, or may seek a more comprehensive reorganization. Sole proprietorships may also be eligible for relief under chapter 13 of the Bankruptcy Code.